23 Gennaio 2013
Mr President of the Swiss Confederation, Ueli Maurer
Mrs Managing Director of the International Monetary Fund, Christine Lagarde
Mr Chairman of the World Economic Forum, Dear Klaus,
Ladies and gentlemen,
It is a great privilege for me to take the floor in this plenary session and I want to thank the World Economic Forum and its director, Klaus Schwab for giving Italy a place of honour in this year’s programme.
I take this not as a gesture of kindness for a soon outgoing Prime Minister, but rather as a sign of interest for the policies of fiscal responsibility, structural reforms Italy has been following over the past year and for the choices it will have to make to shape up its future.
First, let me say that I feel the circumstances in which I am addressing you today are very different from the ones of 14 months ago, when I took office. When I had my first international meetings, I used to remember the words that Prime Minister Alcide De Gasperi, the leader of Italy’s postwar reconstruction, used when he took the floor at the Paris Peace Conference after the Second World War: “I feel that everything but your personal sympathy is against me”.
Today, the atmosphere around Italy has changed. I do not only feel your personal sympathy. I can feel that Italy has gained back respect and confidence in its ability to bounce back. I see a very concrete interest of the business and investors for the opportunities Italy can offer for economic growth and for innovation. I could capture that this morning in my dialogue with the Business and the Investors communities.
I think this change is a reward for the action taken by Government with the support of the Parliament. Most of all it must be a reward for all the Italian citizens, which over the past year understood the need for change. With their work, with their effort, with determination to react to hardship they helped the country turn its back to the past and come out of the crisis stronger. I want here today to pay a tribute to the Italian citizens, to their resilience, to their maturity and I want Italian citizens to be aware of the fact that their contribution through a difficult time has not been negligible also for the improvement of the conditions and all the perceptions of the European Union and all the euro zone. Italy and the European Union are really two parts of same thing and I never want use over the last 14 months the argument vis a vis my fellows citizens asking for their sacrifices sorry but Europe asks us to do so. I always fell and I made the point of this we must to this in our interest and in the interest of future generations of Italians and by the way whilst Europe also recommends us to do so.
Turning to the title of the inaugural address of this year’s World Economic Forum “Leading against all odds” - let me say that I never doubted that taking the rein of a government in the midst of a financial turmoil, and without a genuine political majority, was going to be an uphill struggle.
I have governed with the strong conviction that leadership is the opposite of short termism. Short termism unfortunately exist today both in national politics and in European politics. Short termism means that Italy in the past decade did not use the opportunity of the membership of the euro zone to do reforms and reach a lower debt to GDP ratio. Italy wasted a significant primary surplus and lived on the illusions that we could promise change without ever delivering any real reforms. This is what one can describe as “promising reforms and ending up with taxes”. And with debt. And with a sovereign debt crisis.
Italy had failed to take on the challenges of globalisation, demographic change and technological innovation. It chose the policy of status quo and procrastination. It chose the illusion that when the world is changing, one can stay the same. The costs of inaction were dumped on our children and our grandchildren until the moment of truth arrived.
We tried hard over this year to reverse this way of doing policy. Italy implemented in 12 months what the IMF – and I wish to recognize here and to pay tribute to her for her leadership, Christine Lagarde – called an “ambitious and wide ranging agenda which is a model to fiscal stabilization and growth enhancing reforms”. We worked to tackle deep rooted structural weaknesses, to let outsiders in. We did not go for the low-hanging fruits, but we aimed for the big targets: for example in the area of liberalization we want and introduce the separation of the gas transmission from the gas distribution. Or the abolition of the cosy interlocking directorates that hinder competition in the financial sector . We introduced more freedom in the retail market and created more jobs opportunities in the legal and other professions.
Much more needs to be done, for sure. But the progress is not negligible. The OECD assessed that these reforms made the Italian market as open as the EU average today, despite remaining obstacles at local at regional level. These reforms are expected to bring 4% additional growth over a decade. This is macro-economically relevant.
Structural reforms are important because they lay the foundation for future growth. But also because they bring more equity and more justice to the economy. The Bundes president underlined the World competition, the fact of competition, the virtuous of competition so much of the structure reforms that all our counties are embarked upon really boils down to enhancing competition, to reduce the advantages of the insiders relative to the disadvantages of those lying out in the cold normally youth, normally unemployed, and even more frequently youth and unemployed
Unfortunately, short termism also exists in European politics. I did see short terms in the initial European response to the crisis. For instance when we insisted that each Member State had of course to clean up the mess in front of its own house and we failed – however - to recognize that the crisis had a systemic component. This slowness means the crisis ultimately became a crisis of confidence in the euro area’s ability to solve its problems and in the euro itself. It was a hard but very challenging fight intellectually and politically, for example, to convince my colleagues the head of governments of Nordic European countries that of course one had to do its homework as Italy was desperately doing, desperately but with hope of course doing. But the moment that there is a market less than total faith in the Euro and its integrity as was the case one year ago, than of course it is not enough that each country does its homework diligently because there is a systemic component, a risk factor in the Euro itself. And of course it’s only natural that reflects more than proportionally in heavy manner on those counties witch, like my country, although recognized as been doing the right policies as to bear on their shoulders a very high stock of debt because of inhering policies.
So I think it was an important moment that I place on the time scale in June of last year when at the June European Council after a taught but constructive discussions the heads of State and governments agreed on a new approach to the ending of the crisis, and for the better.
I want to praise the leadership of Mario Draghi and his technical mastery in devising the LTRO and the Outright Monetary Transactions programme. Yet, it is generally believed that if Italy had not promptly sets its set on a credible path of discipline and reforms, and if the European Council - at the insistence of Italy in particular - had not taken its important decisions on financial markets stabilization it would have been much harder for the European Central Bank to launch these programmes. We see here the interaction between domestic policy making, the shaping of EU policies at the political level and the room for comfortable action in its full independence of the ECB.
I also see short termism when we take too long to recognise that for structural reforms and fiscal consolidation to be successful Europe has to act to sustain economic activity and tackle the growing public opinions resentment for job insecurity because of unemployment, loss of income and increasing inequalities.
The Single Market, the role of productive public investments, the need to balance fiscal consolidation and growth are now at the centre of the EU agenda. Thanks also to the Italian pressure and I do hope that in two weeks European leaders will find once more the necessary leadership to agree on a pro-growth and fair new Multi annual Financial Framework for 2020.
Of course leadership is better tested at times of adversity. But it is possible to lead “against all odds”. Policies that would appear deeply unpopular to begin with can win support if they are well explained and if show that the reform effort will be evenly spread to avoid the feeling of being unfairly singled out.
If my experience is anything to go by, the odds are against the reforms if a government has not the vision nor the strength to confront the requests of special interest groups or categories of the society. I saw the corporations and the special interests at work this year to resist reforms. They prefer in the end to pay more taxes rather than accept reforms that opens up markets, because this threatens entrenched positions. Organized interest are an across the board brake on reforms. Sometimes their resistance is camouflaged by using old ideological cultures, that are less and less relevant for today’s challenges.
Let’s not be mistaken. Vested, corporative interests are a feature throughout the EU, not just Italy, and one that has become more powerful in recent years. After the successful launch 20 years ago, the Single Market project has lost pace and support. This is why over the past year I push the game for speeding up the completion of the Single Market. On this I agree with the prime minister Cameron, as I agree that prosperity and growth have to be priority number one for Europe. I believe that we will succeed in making Europe more innovative more suited to challenge of globalization if we tackled this fight together. And I am confident that if there is to be a referendum one day the UK citizens will decide to stay in the European Union and contribute to shape its future. I think that the European Union does not need unwilling Europeans. We desperately need willing Europeans. And I think that there is an advantage in envisaging like prime minister Cameron does, I think that there is an advantage in the idea of the eventually putting to the people the real question in a referendum, not marginal question like “would you like to keep membership of the EU but accept these or that tiny change in a treaty”, of course the answer is not as we have seen in many countries. But if you ask them the fundamental question “would you prefer UK citizens that the UK remains members of the European Union of that we leave the European Union”. I don’t know what the UK citizens will say but I feel pretty confident all the costs and benefits of this decision will come up, will become explicit and I think this will facilitate the decision in the interest of the Europeans.
Let me conclude with some words about why I am confident about the future of Italy. Today, Italy is a very different country from one year ago. We made tough choices to put our public finances on a sustainable path. Italy will have a balanced budget in 2013, in structural terms, and will maintain a primary surplus of over 4% in the next years. We have given ourselves tough rules to make sure nothing can push Italy off track in the next years. We changed our constitution to introduce the rule of balanced budget and we are committed to respect the Fiscal Compact.
We have reformed the pension system, which is now the one of the most sustainable in the world. We have cut public expenditure with two rounds of spending review, saving 11 billion of savings this year. We have rebalanced the weight of tax and expenditures cuts in the fiscal adjustment programme. We have a programme for the sale of the real estate assets and the State owned companies or shareholdings. The message is that the burden of reducing the debt cannot be achieved only through taxation.
We have also considerably stepped up to the dismay of some segments of the public opinion but not the ones we care about. We have considerably stepped up against tax evasion, the black economy and corruption. We have introduced a law against corruption, which I would like to see even strengthened in the future.
We started to break down relationship between politics and administration with, for example, strict standard of transparency for appointments to public positions such as the healthcare sector.
It has been a long year of reforms which I will not even list because you certainly get the general sense of we are trying to do. When I thing along way but more has to be done. We knew this going be to difficult and that the results will not be seen after only more than a year. I am confident in the future of Italy because I see sign that the tidy is turning, the spread
on 10 years bonds has gone down from 575 to 260 basis points. The trade balance shows a significant surplus. Capital and foreign direct investments are returning to Italy. Growth will resume in the second half of the year. I am confident that in the next World Economic Forum Competitiveness index the ranking of Italy will improve significantly. This depends on us not on you.
The future of Italy lays on a steady basis. Italy will not look backward or inward. Italy will continue to be an active partner in Europe. But this requires action. This is why I have chosen to do something which I considered totally against my nature and which is probably against my personal interest. I have decided to lead a civic society movement in the next month general elections because I see the need and the value of a new form of politics, beyond traditional, old coalitions.
I call on the vibrant forces of society to support an agenda of reforms. It’s the challenge of making sure that merit and hard work are rewarded. It’s the challenge of ensuring that opportunity is shared and accessible.
This is the essence of my commitment. Building a highly competitive social market economy in Italy, and in Europe. It is an ambitious agenda, but I remember professor Schwab words that we all have heard, I quote you Klaus, “tremendous social responsibilities”. It is an ambitious agenda but we accountable to the people from our respective county. I accountable to the Italian people to the most fragile in the society, to those who pay the intolerable price of unemployment, our youth in particular, and the deprivation. They are, we should recognize this, they are largely the victims of governments which often have not been strong enough in confronting tax evasion, corruption, special interest groups, greedy manipulators in financial markets, rent seekers. They are the victims of politicians who often engaged in electoral promises regardless or whether these are believable or not, or all too often, they aggravate the crisis because intent as they are on domestic elections they reject the call for the needed greater policy coordination and instead feed nationalism and populism.
Thank you very much for your attention.
